The Exchange Rate Response of Credit-Constrained Exporters: The Role of Location

Trond-Arne Borgersen
2016 Theoretical Economics Letters  
This paper analyses the exchange rate response of credit-constrained exporters and highlights location-driven balance sheet effects residing both on the real side and on the financial side of the economy. A model focusing the location of production relative to both credit markets and to the first and the second hand market for capital inputs introduces a number of balance-sheet driven exchange rate effects. When it comes to location, we consider four regimes, referred to as a developed, a
more » ... developed, a developing and two transition economies that differ with respect to production technology and credit market structure, respectively. The export supply response differs both across countries at different stages of development as well as between countries with different strategies to globalisation. While the Marshal-Lerner condition is a steady-state relation based on long-run price elasticises is the J-Curve a description of the short-run trade balance response to exchange rate shocks (Meade [2]). Both theorems were initially derived in a situation where the exchange rate was pegged and capital movements played a minor role (Pitchford [3]). See also the seminal Obstfeld and Rogoff [4] paper for the relation between trade and exchange rates.
doi:10.4236/tel.2016.65096 fatcat:4iwbqowe4reubmuwhzbjl7tcui